Why Arizona is the ideal launch pad for Fintech (and other) Startups

In 2018, Arizona became the first State in the Nation to adopt what’s referred to as a “regulatory sandbox” – in practice this means a fintech startup (and here I’m thinking AI-based fintechs but it could be non-AI) can serve up to 10 000 customers for 2 years before they have to get a license.

This is huge. Generally, if you’re a brand new fintech startup you had to jump through massive regulatory hurdles, and pay massive fees before you could even think about starting your service. This is a problem because ya can’t very well test your service and see if it’s even viable without getting it to customers first. So you’d be out a lot of money and time before you even knew if what you’re wanting to do even makes sense. Not so in Arizona.

Only a handful of jurisdictions offer a regulatory sandbox to fintechs – Singapore, the UK, Australia, and the UAE come to mind. The US has been, rightfully, very hesitant to allow “experiments on customers with their money”. Arizona is taking a pretty gutsy leap here with this.

This is in line with Arizona’s recent push to make that State a top tier destination for business, including startups. Inc Magazine just published a neat article about Arizona’s efforts to become a major player to businesses, including startups. For AI and ML – related businesses, Arizona may well be becoming a more and more attractive alternative to the ungodly overcrowded, over-regulated, overpriced clusterf*ck that is California (in particular Silicon Valley, obvi).

It’s not all roses in Arizona though. The social network culture isn’t there yet. Phoenix and surrounding cities are absolutely massive beasts where driving is just part of your day. There is much of a “cocooning” thing going on – people tend to go from one cocoon (home) to their mini-cocoon (car) and then to their last one (work place), then reverse it at the end of the day.

There isn’t as much of a in-between-place meetup culture as there is in, say, San Francisco. This surprisingly is probably one of the few actually impactful reasons why Phoenix-based startups tend to face developmental hurdles: lack of “hanging with the peers”.

Phoenix has a decent and improving technological infrastructure (PhoenixNAP, anyone?), lots of forward thinking companies have headquarters or major branches in Arizona, and despite some Family Guy jokes, Arizona State University actually has a massive talent pool (lots of space exploration technology has come out of ASU, for example).

Add to that the significantly lower cost of housing, overall better and cleaner infrastructure – drive from Los Angeles to Phoenix and cry tears of joy when the roads suddenly become wide, not as cluttered, and *gasp!* without massive pot holes every few yards as you approach the desert oasis – and I’m wondering why Arizona isn’t taking much more of the startup pie from California. Is “hanging with your peers” physically as opposed to virtually still really THAT critical in this day and age?

Company founders must realize that their employees generally don’t get to enjoy the same kind of financial upsides, thus making living in ultra-expensive cities like San Fran or San Jose a very expensive choice. They don’t have angel investor money to spend on $5000 per month apartments. They don’t have millions of dollars in lines of credit to pay for everything before turning a profit. When even a mid-level software engineer who is making $150,000 per year has to share a 2-bedroom apartment with someone because he has to live in San Francisco due to his work, that’s frankly ridiculous. That same engineer could have a mansion in Phoenix, a Tesla or 3 in his garage, and enjoy shorter commute times to boot.

Arizona has much lower cost of housing, a very good technical infrastructure, far less red tape and government restrictions, a massive talent pool thanks to ASU, U of A, and all the tech companies that are already in Phoenix, Tempe, Scottsdale, Mesa, Chandler, etc – and it seems to be getting better every year, in part thanks to Arizona Governor Doug Ducey. Arizona isn’t trying to be Silicon Valley, and that’s a good thing. As machine learning and related artificial intelligence developments become more…”democratized”, and accessible to startups and entrepreneurs that don’t have billions of dollars to throw around, we need a place in the Nation that provides sufficient technological and governmental support but doesn’t burden startups with untenable cost of living, or California-style red tape. Arizona might just be that place.

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